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(Kitco News) - The gold market could be stuck around $1,950 an ounce through the rest of the summer as the Federal Reserve has not finished raising interest rates, according to the latest research from Commerzbank.
However, Thu Lan Nguyen, head of commodity research at the German bank, added that while she has lowered her average price target for the third quarter, she still sees prices pushing back to $2,000 an ounce by the end of the year.
The updated forecast comes as August gold futures last traded at $1,959.30 an ounce, down 0.25% on the day. After hitting a three-week high last week, the gold market is seeing some modest profit-taking.
In her latest research report, Nguyen noted that the Federal Reserve's hawkish monetary policies remain the dominant force for gold in the near term. Markets are expecting the Federal Reserve to raise interest rates by 25 basis points later this month and projections from June show the central bank could raise interest rates one more time after the summer.
"We had previously assumed not only that the Fed would end its hiking cycle in May, but also that it would hold out the prospect of the first rate cuts towards the end of the year, which would have given gold a significant boost,“ Nguyen said in her report. "As the precious metal is a non-interest-bearing investment, the outlook for yields in the world's largest capital market, the US, is by far the most important price driver. The recovery is now likely to come later.“
While gold is expected to remain stuck at current prices for the next three months, the German bank looks for the precious metal to end the year on a strong note. Nguyen said that Commerzbank economists expect that the July rate hike will be the central bank's last of this tightening cycle.
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She added that she expects gold prices to push back to $2,000 by the end of the year as recession fears start to pick up.
"We continue to see some scope for an upward move. This is because the Fed's sharp rate hikes (by a total of 525 basis points) are likely to be felt more strongly and it will become clear that the US economy is in recession,“ Nguyen said. "This, in turn, should put an end to any remaining rate hike speculation. If, in the coming year, a further decline in inflation and the weakness of the economy even make rate cuts more likely, gold should head for its all-time high.“
